Claiming Social Security benefits isn't as straightforward as it may seem, and there's a lot of strategy behind when you should file.
The amount you receive each month is directly tied to when you start claiming. To receive your full benefit amount, you'll need to wait until you reach your full retirement age (FRA) to claim. If you were born in 1960 or later, your FRA is age 67. Those who were born before 1960 have a FRA of either 66 or 66 plus a few months.
Image source: Getty Images.
You can claim earlier or later than your FRA, although your benefits will be affected. Oftentimes, financial experts will advise delaying benefits until age 70 because you'll receive extra money each month in addition to your full amount. Similarly, it's often recommended that retirees not claim benefits earlier than their FRA, because you'll receive smaller checks by doing so.
However, these aren't one-size-fits-all guidelines. While sometimes it is the best bet to delay claiming benefits as long as you can, other times, that strategy can backfire and ultimately cost you thousands of dollars.
When waiting to claim benefits becomes costly
In theory, your total benefits should even out over a lifetime regardless of what age you begin claiming. If you claim early, you'll receive more checks over a lifetime, but each one will be smaller. On the other hand, if you wait to claim, you'll receive fewer -- but fatter -- checks.
That said, life doesn't always work out perfectly, and in reality, you could receive much more or less in benefits over the course of retirement depending on when you claim. Determining whether it's wiser to claim early or delay benefits comes down to your life expectancy.
If you have health issues or other reason to believe you won't spend a long time in retirement, waiting to claim benefits may not make financial sense. For example, if you live until, say, age 75, you'll likely receive much more in benefits overall if you were to claim as early as possible at 62 rather than wait until age 70.
To see exactly how much of an effect claiming at the wrong time can have on your benefits, let's look at a hypothetical example. Say that your FRA is age 67, and you'd receive $1,400 per month by claiming at that age. If you claim at 62, your benefits will be reduced by 30%, leaving you with $980 per month. And if you were to claim at age 70, you'd receive an additional 24% on top of your full amount, giving you a total of $1,736 per month. Here's what your lifetime savings would look like depending on what age you claim and how long you live:
| Age | Total Lifetime Benefits When Claiming at Age 62 | Total Lifetime Benefits When Claiming at Age 67 | Total Lifetime Benefits When Claiming at Age 70 |
|---|---|---|---|
| 62 | $0 | $0 | $0 |
| 67 | $58,800 | $0 | $0 |
| 70 | $94,080 | $50,400 | $0 |
| 75 | $152,880 | $134,400 | $104,160 |
| 80 | $211,680 | $218,400 | $208,320 |
| 85 | $270,480 | $302,400 | $312,480 |
| 90 | $329,280 | $386,400 | $416,640 |
Data Source: Author's calculations.
So in this scenario, if you were to claim at your FRA, you'd have to live until at least age 80 to come out ahead compared to if you'd claimed at 62. And if you wait until 70 to claim, you'll need to live until age 85 or beyond to accumulate the most benefits over a lifetime. If you have reason to believe you won't live that long, it may be wiser to claim earlier.
Of course, it's impossible to predict exactly how long you'll live, but try to estimate the best you can. Be honest with yourself about your health, and look into your family history to get a sense of the average life expectancy. It's not the most uplifting topic to think about, but it could maximize your retirement income.
More reasons to claim sooner rather than later
Not expecting to live into your 80s or beyond is a good reason to claim Social Security benefits early, but it's not the only one.
You might also choose to claim sooner if you're forced into an earlier-than-expected retirement. Approximately 43% of retirees say they had to enter retirement sooner than they anticipated, according to a report from the Employee Benefit Research Institute, most commonly as a result of health issues or sudden job loss. If you're at least age 62 and you don't have enough personal savings to cover all your expenses, you might have no choice but to start claiming your benefits as soon as you can.
Another reason you may want to claim early is if you and your spouse have a Social Security strategy in mind. If the two of you are both eligible for benefits, it's a good idea to consider when you both should claim to maximize your money. For instance, the lesser-earning spouse may want to claim earlier so the two of you have a little extra money to spend early in retirement, while the higher-earning spouse delays benefits to earn a bigger boost each month that could come in handy later in retirement.
Regardless of when you start receiving benefits, make sure you have some type of strategy behind your decision. You might stand to receive thousands of dollars more over a lifetime if you claim at the right age, so the more you've thought about your decision, the better off you'll be.
